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Litigation Case Study: How a Well Drafted 20 Year Old Agreement Protected a PPP Investor

Private investors must consider all the potential consequences of entering into what is often a very long term relationship with the state before sitting down to draft PPP agreements.

A private investor, entering into a long-lasting relationship with a state entity, should assess diligently how the relationship will likely run and in what ways his or her private interests can be protected as time progresses because PPPs generally entail long term agreements. If the main instruments establishing the partnership are well-drafted, the private investor may benefit from it throughout the implementation/contract period. The wording of the permitting clauses in particular should be clear and structured in a manner that covers all potential risks arising from the administrative law that may hamper the private interests.

The 1982 Constitution, governed by the legality principle, stipulates that the rights and duties of the administration should be regulated with laws. When administrative authorities are to apply a sanction, they should be able to substantiate such act with a specific legal provision. Any party which believes that an administrative act executable upon him is unjust or illegal may bring a case before the courts with a cancellation request. In such lawsuits the provisions of the PPP agreements may play an important role for the resolution of the dispute.  

This was the situation for a client company that had been operating a seaside gas-fired power plant in Turkey for two decades. The PPP was in the form of 40-year BOT. The private investor had entered into the implementation agreement with the Ministry of Energy and Natural Resources (“MENR”) back in 1993 based on Article 4 of the Electricity BOT Law. Enacted in 1984, this was the first legal instrument in Turkey regulating BOT projects and transfer of operation rights.